Chapter 7 advacc 1 Dayag

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Chapter 7

Problem I

1. Entries in 20x4:

Cash……….……….. 3,500 Mortgage Notes Receivable ……….. 20,500

Real Estate ………. 9,000

Gain on Sale of Real Estate ……….. 15,000

Cash ……… 500

Mortgage Notes Receivable ………. 500 Entry in 20x5:

Real Estate ………. 16,500 Loss on Repossession of Real Estate ……….. 3,500

Mortgage Notes Receivable ……… 20,000 2. Entries in 20x4

Cash ……… 3, 500 Mortgage Notes Receivable ……….. 20,500

Real Estate ……….. 9,000

Deferred Gross Profit on Installment Sales ………... 15,000

Cash ………. 500

Mortgage Notes Receivable ………..….. 500 Receipt P500 cash in 20x4 applicable to principal of note

Deferred Gross Profit on Installment Sales ………... 2,500 Realized Gross Profit on Installment Sales………... 2,500

Gross Profit Percentages

15,000/24,000, or 62.5%

6.25% of P4,000 (collections in contract in 20x4) Or P2,500

Entry in 20x5

Real Estate………... 16,500 Deferred Gross Profit on Installment Sales ……….. 12,500

Mortgage Notes Receivable ……….. 20,000 Gain in Repossession of Real Estate ……….. 9,000

Problem II

1. 20x4: No Profit is recognized. P4,000 down payment is treated as a return of investment. 20x5 P750 is profit. P250 is treated as a return of investment.

Following years: Each annual installment f P1,000 is profit. 2. 20x4: P4,000 is profit.

20x5: P1,000 is profit.

20x6: P750 is profit, and P250 is treated as return of investment.

Following years: Each annual installment is P1,000 is treated as a return of investment.

3. Profit Percentage is 5,750 / P10,000, or 5.75% of sales

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Following years: P1,000 x 57.5%, or P575 per year, is regarded as profit. P425 per year is treated as return of investment. Problem III

1.

a. Installment Contracts Receivable 19X8……… 250,000 Installment Sales ……… 250,000

b. Cash ……….. 120,000

Installment Contracts Receivable 19X8 ……… 120,000

c. Cost of Installment Sales ……….. 200,000 Merchandise Inventory ……….. 200,000

d. Merchandise Repossessions ……… 14,500

Deferred Gross Profit on Installment Sales 19X8 ……….. 4,000

Loss on Repossession ………... 1,500

Installment Contracts Receivable, 19X8 ………. 20,000

Gross Profit Percentages: 50,000/250,000, or 20%

Deferred Gross Profit on Repossession: 20% of P20,000 or P4,000 Fair value of repossessed merchandise.. P 14,500 Less: Unrecovered cost:

Unpaid balance………P 20,000 Less: Deferred Gross Profit

20% x P20,000……… 4,000 16,000 Loss on repossession………. P 1,500 e. Expenses ……… 16,000

Cash ………. 16,000 2. Adjustment to Recognize Gross Profit on Installments Sales:

a. To set-up Cost of Installment Sales:

No entry (since perpetual inventory method is used) b. To set-up Deferred Gross Profit on Installment Sales:

Installment Sales ……… 250,000 Cost of Installment Sales ………. 200,000

Deferred Gross Profit on Installment Sales-20x4.. ……… 50,000

c. Adjustment to Recognize Gross Profit on Installment Sales:

Deferred Gross Profit on Installment Sales – 20x4…………..……. 24,000 Realized Gross Profit on Installment Sales – 20x4 ………. 24,000

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or P24,000 d. Closing of nominal accounts.

Realized Gross Profit on Installment Sales – 20x4……… 24,000 Expenses ………. 16,000 Loss on Repossessions ………. 1,500 Income Summary ………. 6,500

To close the accounts for 20x4.

Problem IV 1.

January to December 31 20x4 20x5

(1) To record regular sales:

Accounts receivable 600,000 1,080,000

Sales 600,00 1,080,000

(2) To record installment sale:

Cash 60,000 144,000

Installment accounts receivable 300,000 336,000

Installment Sales 360,000 480,000

(3) To record cost of sales: Periodic Method: No entry Perpetual Method:

Regular Sales:

Cost of Sales 480,000 864,000

Merchandise inventory 480,000 864,000 Installment Sales:

Cost of installment sales 252,000 312,000

Merchandise inventory 252,000 312,000 (4) To record collections: Regular Sales: Cash 144,000 360,000 Accounts receivable 144,000 360,000 Installment Sales: Cash 108,000 204,000 Installment Accounts receivable – 20x2 72,000 72,000 Installment Accounts receivable – 20x3 60,000 Interest income 36,000 72,000

(5) to record payment of operating expenses:

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Cash 90,000 102,000 2.

Adjusting entries (end of the year):

(6) To recognize accrued interest receivable

Interest receivable 1,440 2,880

Interest income 1,440 2,880

(7) To set-up Cost of Sales: Periodic Method:

Cost of installment sales 480,000 864,000

Merchandise inventory 480,000 864,000 Perpetual Method: No entry

(7) To set-up Cost of Installment Sales: Periodic Method:

Cost of installment sales 252,000 312,000 Shipment s on installment

sales 252,000 312,000

Perpetual Method: No entry

(8) To set-up Deferred Gross Profit

Installment sales 360,000 480,000

Cost of installment sales 252,000 312,000 Deferred gross profit – 20x4 108,000

Deferred gross profit – 20x5 168,000 Gross profit rate – 20x4: P 108,000 / P360,000 = 30%.

Gross profit rate – 20x5: P168,000 / P480,000 = 35%. (9) To record realized gross profit on

installment sales:

Deferred gross profit – 20x4 25,200 25,200

Deferred gross profit – 20x5 21,000

Realized gross profit 25,200 46,200 20x4: Realized gross profit on installment sales:

Collections applying as to principal..………P 72,000 Multiplied by: Gross profit rate………. 30% Realized gross profit………P 21,600 20x5: Realized gross profit on installment sales;

20x4 20x5

Collections –

principal……… P72,000 P60,000 Multiplies by: Gross profit

%... ____30% ____35%

Realized gross

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Closing entries:

(10) To close realized gross profit account:

Realized gross profit 21,600 42,600

Income summary 21,600 42,600

(11) To close other nominal accounts

Sales 600,000 1,080,000

Interest income 37,440 74,880

Cost of sales 480,000 864,000

Operating expenses 90,000 102,000

(12) To close results of operations:

Retained earnings 89,040 231,480 Problem V

1.

Type of Sale Amount Ratio to TotalSales Allocated Cost Regular Sales:

Cash sales P 225,000 P *146,250

Credit sales ___450,000 **292,500

Total regular sales P 675,000 675/1,800 P 438,750

Installment Sales _ 1,125,000 1,125/1,800 __731,250

Total Sales P 1,800,000 P 1,170,000

*P225,000/P1,800,000 x P1,170,000 = P146,250 **P450,000/P1,800,000 x P1,170,000 = P292,500

The allocation above was based on the assumptions that the markup for each type of sale is the same. Normally, the selling prices of the merchandise are not the same for each type of sales.

2.

Type of Sale Amount

Amount based on

Cash Sales

(100%) Ratio to TotalSales Allocated Cost Cash sales P 225,000 P 225,000 225/1,500 P 175,500 Credit sales 450,000 375,000* 375/1,500 292,500 Installment Sales 1,125,000 900,000** 900/1,500 __ 702,000 Total Sales P 1,500,000 P 1,250,000 P 1,170,000 *P450,000 / 120% = P375,000 **P1,125,000 / 125% = P900,000 3.

Type of Sale Amount Gross profit rate Cost ratio Allocated Cost*

Cash sales P 225,000 30% 70% P 157,500

Credit sales 450,000 36% 64% 288,000

Installment Sales 1,125,000 40% 60% _ _675,000

Total Sales P 1,800,000 P 1,170,000

* Amount of sale x cost ratio. Problem VI

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Repossessed merchandise………... 68,400 Deferred gross profit – 20x4………... 48,000 Loss on repossession………... 3,600

Installment accounts receivable – 20x4………. 120,000 To record repossessed merchandise.

Repossessed merchandise………... 12,000

Cash, etc (or various credits)………... 12,000

To record reconditioning costs

The loss on repossession is computed as follows: Estimated selling price after reconditioning

costs... P 108,000

Less: Reconditioning costs……… P 12,000 Costs to sell and dispose………. 6,000

Normal profit (20% x 108,000) ……….

__21,600 __39,600 Market value before reconditioning costs……….. P 68,400 Less: Unrecovered cost

Installment accounts receivable – 20x4,

unpaid balance………... P120,000 Less: Deferred gross profit – 20x4 (P120,000 x

40%)...

__48,000 __72,000

Loss on repossession………. P( 3,600)

Problem VII

The entry to record the sale of the new vehicle under the periodic method: Trade-in Merchandise………... 840,000 Over-allowance on trade-in merchandise………. 360,000

Cash……….. 2,400,00

0 Installment accounts receivable – 20x4………... 3,360,00 0

Installment sales………... 6,960,00 0 To record installment sales with trade-in.

Alternatively, the over-allowance on trade-in merchandise may also be treated as net of installment sales, the entry would be as follows:

Trade-in Merchandise………... 840,000

Cash……….. 2,400,00

0 Installment accounts receivable – 20x4………... 3,360,00 0

Installment sales (net of over-allowance)……... 6,600,00 0 To record installment sales with trade-in.

The over-allowance is computed as follows:

Trade-in allowance………... P1,200,00 0 Less: Market value before reconditioning costs:

Estimated resale price after reconditioning costs. P1,680,0 00 Less: Reconditioning costs……….. 420,000 Costs to sell (5% x P1,680,000)……… 84,000

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Normal profit (20% x P1,680,000)………... __336,00

0 __840,000

Over-allowance……… P

360,000 The gross profit rate on installment sales is computed as follows:

Installment sales………... P6,960,000 Less: Over-allowance……… ___360,000 Adjusted Installment Sales……… P6,600,000 Less: Cost of installment sales………. __3,920,00 0

Gross profit………. P2,680,000

Gross profit rate (P2,680,000/P6,600,000)……….. 40.60% Further, the entry to record the reconditioning costs is as follows:

Trade-in Merchandise………... 420,000

Cash, etc (or various credits)………... 420,000 To record reconditioning costs.

Incidentally, the realized gross profit on installment sales of the new merchandise for the year 20x4 is computed as follows:

Trade-in merchandise (market value before reconditioning costs)……… P 840,000

Down payment……… 2,000,000

Installment collection (March 31 – December 31: P80,000 x 10 months) ___800,000

Total collections……….. P3,640,000

Multiplied by: Gross profit rate in 20x4……….. ___40.60% Realized gross profit on installment sales of new merchandise………… P1,477,840 Problem VIII

1. Entries assuming that monthly payments consist of P600 plus interest on the unpaid balance:

Oct. 31 Cash ……… 20,000 Mortgage Notes Receivable ………. 55,000

Real Estate ………. 60,000 Deferred Gross Profit on Installment Sales ………. 15,000

Nov. 30 Cash ………. 1,150

Mortgage Notes Receivable ……… 600 Interest Income ………. 550

Interest Received: P55,00 at 12% for 1 month, or P550

Dec. 31 Cash ……… 1,144

Mortgage Notes Receivable ……….. 600 Interest Income ……… 544 Interest received: P54,400 (P55,000-P600) at 12% 1 month, or P544

31 Deferred Gross Profit on Installment Sales ……….. 4,240 Realized Gross Profit on Installment Sales ……… 4,240

Gross Profit Percentage: 15,000/75,000, or 20%

Realized Gross Profit: 20% of P21,200 (collections applicable to principal in 19X3) or P4,240

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2. Entries assuming monthly payments of P600 that include interest on the unpaid balance of the contract:

Dec. 31 Cash ……… 20,000.00 Mortgage Notes Receivable ……… 55,000.00

Real Estate ……… 60,000.00

Deferred Gross Profit on Installment Sales ……….. 15,000.00

Nov. 30 Cash ……… 600 Mortgage Notes Receivable ……….. 50.00

Interest Income ……… 550.00

Interest Received: P55,000 at 12% for 1 month or P550. Balance Payment, P600-P550, or P50, is reduction in principal)

Dec. 31 Cash ………. 600.00 Mortgage Notes Receivable ……… 50.50

Interest Received ……… 549.50

Interest Received: P54,950. Balance Payment, P600.00-549.50, o P50.50, is reduction in principal.

31 Deferred Gross Profit on Installment Sales ……… 4,020.10 Realized Gross Profit on Installment Sales ……… 4,020.10

Gross Profit Percentage: 15,000/75,000, or 20%

Realized Gross Profit: 20% of P20,100.50 (collections applicable to principal in 19X3), or P4,020.10 Problem IX 1. 6/30x4: Cash………. 25,000 Notes Receivable ……… 125,000 Accumulated Depreciation (3.1/2[2% of P90,000]) ……… 6,300 Depreciation Expense (1/2[2% of P90,000]) ……… 900 Land ……… 10,000 Building ……….. 90,000 Deferred Gross Profit on Sale of Property ……… 57,200 Deferred Gross Profit on Sale of Property ……… 9,553

Realized Gross Profit on Sale of Property ………... 9,553 Amount realized: (P25,000/150,000) x 57,200

2. 6/30x5: Cash ……… 30,000

Notes Receivable ……….. 30,000 Deferred Gross Profit on Sale of Property ………. 11,440

Realized Gross Profit on Sale of Property ……… 11,440

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6/30/x6 Cash ………. 50,000

Notes Receivable ……… 50,000 Deferred Gross Profit on Sale of Property ……… 19,067

Amount Realized: (P50,000/P150,000) X 57,200

6/30/x7 Cash ……….. 15,000

Notes Receivable ……… 15,000 Deferred Gross Profit on Sale of Property ………. 5,720

Amount Realized: (P15,000/P150,000) X 57,200 Problem X

Installment Contracts Receivable ………. 200,000 Installment Sales ……… 200,000

Cost of Installment Sales ……….. 120,000

Merchandise Inventory ……… 120,000 Cost of Sales: 60% of P200,000

Installment Sales ……….. 200,000 Cost of Installment Sales ……… 120,000

Deferred Gross Profit on Installment Sales ……… 60,000

Cash ………. 124,000 Installment on Contracts Receivable – 20x4………... 30,000

Installment on Contracts Receivable – 20x5………... 34,000

Installment on Contracts Receivable – 20x6………... 60,000

Deferred Gross Profit on Installment Sales -20x4 ……… 13,800 Deferred Gross Profit on Installment Sales-20x5 ………... 14,280 Deferred Gross Profit on Installment Sales -20x6 ………... 24,000 Realized Gross Profit on Installment Sales ……….………….. 52,080

Realized Gross Profit

20x4: 46% of P30,000 or P13,800 20x5: 42% of P34,000 or P14,280 20x6: 40% of P60,000 or P24,000 Problem XI

1. Calculation of gross profit percentage on installment sales

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sales 20x6 ………. 27.5%

20x5: P45,000 deferred gross profit, 20x5, /P150,000 installment accounts receivable 20x5 ………..

30%

20x4: P9,600 deferred gross profit, 20x4 , /30,000 installment accounts

receivable 20x4 ……….. 32% 2. WW EQUIPMENT, Inc. Balance Sheet December 31, 20x6 Assets Cash ………... P27,500

Installment Accounts Receivable 20x6 ……….. P 55,000 20x5 ……….. 12,000 20x4 ……….. 3,000 70,000 Accounts receivable ………. 17,000 Inventory ……….... 60,000 Other Assets ………... 40,000 Total Assets ……… P 214,500 Liabilities Accounts payable ……… P 40,000 Deferred Gross Profit 20x6 ……… P 15,125

20x5 ……… 3,600 20x4 ……… 960 19,685 Total Liabilities P 59,685 Stockholders’ Equity Capital Stock ……….. P 100,000 Retained Earnings ……….. P 68,400 Balance, Jan. 1, 20x6 ………. 13,585 Balance, Dec. 31, 20x6 ………. 54,185

Total Stockholder’s Equity ……… P154,815

Total Liabilities and Stockholder’s Equity ………. P 214,500

WW EQUIPMENT, Inc. Income Statement

For Year Ended December 31, 20x6 Installment

Sales RegularSales Total Sales ………... P320,000 P125,000 P445,00

0 Cost of goods sold:

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Merchandise Inventory, Jan. 1 ………P 52,000

Purchases ………... 350,000

Merchandise Available for sale ... 402,000

Less: Merchandise Inv. Dec. 31 …………

60,000 232,000 110,000 342,000

Gross Profit ……….. P88,000 P15,000 P103,00 0 Less: Deferred Gross Profit on 19X34

……… 15,125 15,125

Realized Gross Profit on current year’s sales

………. P78,875 P15,000 P87,875

Add: realized gross profit on prior years’ sales on Installment basis (see gross profit schedule)

………. 50,040

Total Realized Gross Profit ………. P137,91

5 Operating Expenses ………... 151,50 0 Net Loss ……….. P 13,585 WW EQUIPMENT, Inc.

Analysis of Gross Profit on Installment Sales Schedule to Accompany Income Statement

For Year Ended December 31, 20x6 Deferred Gross profit on installment sales, 20x6

Installment contracts receivable, P320,000 less collections P265,000

Or P55,000; P55,000 x 27.5% ……… P 15,125

Realized Gross Profit:

20x6 20x5 20x4

Collections on Installment Contracts Receivable ………... P265,000 P138,000 P27,000

Installment sales gross profit percentage ……….. 27.5% 30% 32%

Realized Gross Profit ……….. P 72,875 P 41,400 P 8,640

Installment Sales ……… 320,000 Cost of Installment Sales ………. 232,000 Deferred Gross profit -20x6……… 88,000 Deferred Gross Profit, 20x6 ………... 72,875 Deferred Gross Profit, 20x5 ………... 41,400 Deferred Gross Profit, 20x4 ………... 8,640 Realized Gross Profit on Installment sales……… 122,915

Income Summary ……… 170,000

Shipment on Installment of Sales ……… 232,000

Merchandise Inventory, Jan. 1, 20x6 ………. 52,000

Purchases ……… 350,000

Merchandise Inventory, Dec. 31, 20x6 ……….. 60,000

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Sales ………. 125,000

Income Summary ………. 125,000

Realized Gross Profit on Installment Sales………..………... 122,915

Income Summary ………. 122,915 Income Summary ……… 151,500 Operating Expenses ………... 151,500 Retained Earnings ……….. 13,585 Income Summary ………... 13,585 Problem XII

1. Calculation of gross profit percentage on installment sales

20x6: P190,000 gross profit on installment sales, 20x6, /P500,000 installment sales 20x6 ……… 38%

20x5: P96,000 deferred gross profit, 20x5, /P240,000 installment

accounts receivable 20x5 ………. 40% 20x4: P22,500 deferred gross profit, 20x4 , /50,000 installment

accounts receivable 20x4 ………. 45% 2.

Deferred Gross Profit, 20x6……… 1,900 Deferred Gross profit, 20x5……… 4,000 Deferred Gross Profit, 20x4……… 3,600

Loss on Repossessions……….. 9,500 Cancellation of deferred gross profit,

balances upon repossessions: 20x6: 38% of P5,000, or P1,900 20x5: 40% of P10,000, or P4,000 20x4: 45% of P8,000, or P3,600

Installment

Sales RegularSales Total Sales ………... P500,000 P192,000 P692,000 Cost of goods sold:

Merchandise Inventory, Jan. 1 ……… P 30,000

Purchases ………... 445,000

Repossessed Merchandise ……….. 10,000

Merchandise Available for sale ... 495,000

Less: Merchandise Inv. Dec. 31 …………

35,000 310,000 150,000 460,000

Gross Profit ……….. P190,000 P42,000 P103,000 Less: Deferred Gross Profit on 20x6 sales (see

schedule) 32,300 32,300

Realized Gross Profit on current year’s sales

………. P157,700 P42,000 P199,700

GG SALES CORPORATION Income Statement

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Add: realized gross profit on prior years’ sales on Installment basis (see gross profit schedule) ……….

Deduct loss on repossession ……….

100,650 P300,350 3,500

Total Realized Gross Profit ………. P296,850

Operating Expenses ……… 300,000

Net Loss ……….. P 3,150

Analysis of Gross Profit on Installment Sales Schedule to Accompany Income Statement

For Year Ended December 31, 20x6 Deferred gross profit on Installment sales – before defaults, 19X8:

Installment contracts receivable, P500,00, less collections, P415,000, or

P85,000; P85,000 x 38% ………. P 32,300 Realized Gross Profit:

20x6 20x5 20x4

Collections of Installment contracts receivable.. P415,000 P210,000 P 37,000 Installment sales gross profit percentage ……….. 38% 40% 45% Realized gross profit ………..P157,700 P 84,000 P 16,650

GG SALES CORPORATION Balance Sheet December 31, 20x6 Assets Cash ………... P 25,000

Installment Accounts Receivable 20x6 ………P 80,000 20x5 ……… 20,000 20x4 ……… 5,000 105,000 Accounts receivable ……….. 40,000 Inventory ………. 35,000 Other Assets ……… 52,000 Total Assets ……….P 257,000 Liabilities Accounts payable ………. P 75,000 Deferred Gross Profit 20x6 ………. P 30,400

20x5 ………. 8,000 20x4 ………. 2,250 40,650 Total Liabilities P 115,650 Stockholders’ Equity Capital Stock ………. P100,000 Retained Earnings ………. P 44,500 Balance, Jan. 1, 20x6 ……… 3,150 Balance, Dec. 31, 20x6 ……… 41,350

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Total Stockholder’s Equity ………. 141,350

Total Liabilities and Stockholder’s Equity ……….. P 257,000

4. Installment Sales ……….. 500,000

Cost of Installment Sales ……….. 310,000 Deferred Gross Profit, 20x6 ……….. 190,000 Deferred Gross Profit, 20x6 ……… 157,500

Deferred Gross Profit, 20x5 ……… 84,000 Deferred Gross Profit, 20x4 ……… 16,650

Realized Gross Profit on Installment Sales… ……… 258,350 Income Summary ……… 185,000

Shipment on Installment Sales ……… 310,000

Merchandise Inv, January 1, 20x6 ………. 30,000

Purchases ………. 455,000

Repossessed Merchandise ……….. 10,000 Merchandise Inv, December 31, 20x6……..………. 35,000

Income Summary ……….. 35,000 Sales ……….... 192,000

Income Summary ……… 192,000

Realized Gross Profit on Installment Sales………..258,350

Income Summary ……….. 258,350 Income Summary ……… 3,500 Loss on Repossession ………. 3,500 Income Summary ……… 300,000 Operating Expenses ……….. 300,000 Retained Earnings ……… 3,150 Income Summary ………. 3,150 Problem XIII 1.

Deferred gross profit – 20x4……….………. 8,407.00 Deferred gross profit – 20x5……….………. 93,438.80 Deferred gross profit – 20x6……….………. 71,006.70

Realized Gross Profit on Installment Sales (20x4 – 20x6)….. 172,852.50

Computation of GP rates:

20x4: P247,000/P380,000 = 65%, cost rate; GP rate = 100% - 65% = 35% 20x5: P285,120/P432,000 = 66%, cost rate; GP rate = 100% - 66% = 34% 20x6: P379,260/P602,000 = 63%, cost rate; GP rate = 100% - 63% = 37% Calculation of collections in 20x6:

20x4: Beginning balance P 24,020

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P2,200 (write-offs on default) 274,820

20x6: P602,000 (sales) – P410,090 (ending balance) 191,910

Calculation of realized gross profit:

20x4: 35% x P24,020 P 8,407.00 20x5: 34% x P274,820 93,438.80 20x6; 37% x P191,910 71,006.70 Total P172,852.50

2. Deferred gross profit 20x5……… 748.00 Inventory of Repossessed Merchandise………. 748.00

To reduce by 20x5 deferred gross profit related to defaulted contract and requiring cancellation, 34% of P2,200 (P5,400 sales price- P3,200 collections to date); inventory now reported at P2,200 (balance of installment contract), less P748 or P1,452.

Loss on repossession……….. 381.00

Inventory of repossessed merchandise……….. 381.00

To reduce inventory to “market” as follows: to realize a gross profit of 37% on a resale estimated at P1,700, the repossessed merchandise should be reported at a value of 63% of P1,700, or P1,071; the inventory then requires a further write-down of P381 (P1,452 – P1,071)

Repossessed merchandise could be recorded at its resale value less the usual gross profit margin on sales. Recording the merchandise at P1,452 will result in the realization of less than the normal profit margin on the resale of the goods in the subsequent period. if expenses of the resale exceed P248 (P1,700 – P1,452), the later period would actually have to absorb a loss as a result of such valuation. Recording the goods at resale value reduced by the company’s usual profit margin on sales is recommended, for such practice will charge the next period with no more than the utility of the goods carried forward. Problem XIV – HH Instruments

1. Installment Contracts Receivable ………. 1,600.00

Merchandise Inventory (Piano) ……… 1,000.00 Deferred Gross Profit on Installment Sales ……… 600.00

Cash ………... 160.00

Installment Contracts Receivable ……… 160.00 2. Cash ………... 160.00

Interest Income ……… 14.40 Installment Contracts Receivable ………. 145.60 Cash ………... 160.00

Interest Income ………. 11.47 Installment Contracts Receivable ……… 148.53 3. Deferred Gross Profit on Installment of Sales ……….. 225.45

Realized Gross Profit on Installment of Sales ……… 225.45

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Realized Gross Profit for 20x4: 37.5% of 601.19 (sum of payments on installment contract)

4. Merchandise Inventory (piano) ………... 560.00 Deferred Gross Profit on Installment of Sales ………... 374.55 Loss on Repossessions ………. 64.36

Installment Contracts Receivable ……… 998.81 Deferred Gross profit cancelled upon repossession:

37.5% of P998.81 (balance in installment contracts receivable account) or P 374.55

Problem XV – Big Bear 20x4:

Installment receivables 250,000

Inventory 150,000 Deferred gross profit 100,000 Cash 80,000

Installment receivables 80,000 20x5:

Cash 120,000

Installment receivables 120,000 Deferred gross profit 50,000

Realized gross profit 50,000 20x6:

Cash 50,000

Installment receivables 50,000 Installment receivables 300,000

Inventory 210,000 Deferred gross profit 90,000 Cash 135,000

Installment receivables 135,000 Deferred gross profit 40,500

Realized gross profit 40,500 Gross profit deferred at sale = 30% x P300,000 = P90,000.

Gross profit earned at collection = (P135,000/P300,000) x P90,000 = P40,500 (Or cash collected x GP% =P135,000 x 30% = P40,500)

Problem XVI – Tappan Industrial

(1) Reasonably assured - accrual basis should be used: full gross profit recognized in the year of the sale.

Determination of selling price: PVn = R(PVAFn/i) Table IV

PVn = P187,500 x 4.3553 n = 6, i = 10%

PVn = P816,619 (rounded)

Gross profit on sale:

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9

Cost of sales 637,500

Gross profit P179,119

Interest revenue--4 months: P816,619 x 10% x 4/12 = _ 27,221 Total income for 20x5 = P179,119 + P27,221 = P206,340 (2) No reasonable assurance – assume the use of installment sales method

Installment sale: Gross profit (P179,119/P816,619) = 22% rounded Gross profit earned in 20x5 (P0 x 22%) P 0

Interest revenue 27,221

Total income for 20x5 P 27,221

Multiple Choice Problems 1. b –

20x4: P500,000 x 30% = P 150,000

20x5: P600,000 x 40% = 240,000 P390,000

2. d

Realized Gross Profit on Installment Sales in 20x6:

20x4 sales: P10,000 x 22%P 2,200 20x5 sales: P50,000 x 25% 12,500 20x6 sales: P45,000 x P28,200 / (P28,200+P91,800) 10,575 P 25,275

Realized Gross Profit on Sales in 20x5 P

10,500

Less: Realized Gross Profit in 20x5 for 20x5 sales: (P20,000 x 25%) 5,000

Realized Gross Profit in 20x5 for 20x4 sales P

5,500

Divided by: Collections in 20x5 for 20x4 sales P

25,000

Gross Profit % for 20x4 sales 22%

3. a

Installment Sales Method:

20x3 Sales: P240,000 x 25/125P 48,000 20x4 Sales: P180,000 x 28/128 39,375

Realized Gross Profit on Installment SalesP 87,375 Cost Recovery Method:

20x3 Cost: P480,000 / 1.25 P384,000

Less: Collections in 20x3 140,000

Collections in 20x4 240,000

Unrecovered Cost, 12/31/20x4 P 4,000

Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered through cash receipts. All cash receipts, both interest and

(18)

principal portions, are applied first to the cost of the items sold. Then, all subsequent receipts are reported as revenue. Because all costs have been recovered, the recognized revenue after the cost recovery represents income (interest and realized gross profit). This method is used only when the circumstances surrounding a sale are so uncertain that earlier recognition is impossible.

4. a P0. 5. c 6. e, 20x6 – 0; 20x7 - 0 Unrecovered costs,1/1/20x4 110,000 Less: Collections 1/1//20x4 0

Add: Sales on account 15,000

Total 15,000

Less: 1/1/20x5 10,500

Collections in 20x4 __4,500

Unrecovered costs,1/1/20x5 105,500

1/1//20x5 10,500

Total 40,500

Less: 1/1/20x6 25,500

1/1//20x6 25,500

Total 85,500

Less: 1/1/20x7 40,500

1/1//20x7 40,500

Total 64,500 Less: 1/1/20x8 70,000 Collections in 20x7 ____-0-Unrecovered costs,1/1/20x8 45,500 7. b 20x4: P150,000 – (P568,620 x 10%) = P93,138. 20x5: (P568,620 – P93,138) x 10% = P47,548. 8. a – refer to No. 3 for discussion.

Cost, January 1, 20x4 P 60,000

Less: Collections including interest – 20x4 32,170 Unrecovered Cost, December 31, 20x4 P 27,830 9. c (P3,600,000 – P2,400,000) ÷ P3,600,000 = 33 1/3%

(P3,600,000  .20) + [(3,600,000  .80)  4/12)] = P1,680,000 P1,680,000  33 1/3% = P560,000.

10. b [(P3,600,000  .20) + (P3,600,000  .80 x 8/12] – P2,400,000 = P240,000. 11. b – refer to No. 3 discussion.

Cost, January 1, 20x4……….P 500,000 Less: Collections including interest – 20x4……….P241,269

(19)

Collections including interest – 20x5……… 241,269 482,538 Unrecovered Cost, December 31, 20x5……….P 17,462 12. b [(P1,400,000 – P980,000) ÷ P1,400,000] x P840,000 = P252,000.

13. c P300,000 + P50,000 = P350,000

P350,000 – P245,000 = P105,000 gross profit (30% gross profit rate) (P300,000 – P100,000) x 30% = P60,000.

14. c P1,200,000 – P720,000 = P480,000 gross profit (40% gross profit rate) P480,000 – (P288,000 ×.4) = P364,800.

15. d – [P225,000 + (P120,000/40%)]

16. b (P36,000 ÷ 24%) + (P198,000 ÷ 30%) = P810,000. 17. d

Installment Accounts Receivable, December 31, 20x5: DGP, 12/31/20x5 / GP%

20x4 Sales: P120,000/ 30% P 400,000

20x5 Sales: P440,000/ 40% 1,100,000

P 1,500,000 18. c

Sale: Installment receivables 4,500,000 Inventory 3,600,000

Deferred gross profit 900,000

Payment: Cash 500,000 Installment receivables 500,000

Deferred gross profit 100,000 Realized gross profit 100,000

Balance Sheet:

Installment receivables (4,500,000 – 500,000) P 4,000,000

Deferred gross profit (900,000 – 100,000) 800,000

Installment receivables (net) P 3,200,000 19. b

12/15/x5 Cash [(P4,500,000 – P500,000)/2 = P2,000,000] 2,000,000

Installment receivables 2,000,000 Deferred gross profit [P2,000,000 x (900/4,500)] 400,000

Realized gross profit 400,000

Balance sheet:

Deferred gross profit: P800,000 400,000 = P400,000

Realized gross profit of P400,000 would be reported in the income statement. 20. No requirement

(20)

22. a Gross profit % = (P900,000 P450,000)/P900,000 = 50% 20x4: 50% x P300,000 = P150,000

23. c

20x4 sales: Gross profit % = (P900,000 P450,000)/P900,000 = 50%

50% x P300,000 received in 2010 = P150,000

20x5 sales: Gross profit % = (P1,500,000 P900,000)/P1,500,000 = 40% 40% x P400,000 received in 2010 = P160,000

Total: P150,000 + P160,000 = P310,000 24. c

20x4 Sales: Installment receivables = P900,000 – P300,000 (x4 collections) - P300,000 (x5 collections) = P 300,000

Deferred gross profit = P450,000 – P150,000 (x4 collections)

- P150,000 (x5 collections) = 150,000

Net installment receivable for 20x4 sales = P 150,000

20x5 Sales: Installment receivables = P1,500,000 – P500,000 (x5 collections)= P1,000,000

Deferred gross profit = P600,000 – P200,000 (x5 collections) = 400,000

Net installment receivable for 20x5 = P 600,000

Total = P 750,000

25. a - Costs not yet recovered. 26. c Cost, 20x4 P 30,000 20x4 cost recovery (20,000) Remaining cost, 12/31/x4 P 10,000 20x5 collection 15,000 Gross profit – 20x5 P 5,000 27. d Cost P 30,000 20x4 cost recovery ( 20,000) 20x5 cost recovery ( 10,000) Remaining cost 0

(21)

28. d

Sale: Installment receivables 55,000

Inventory 30,000

Payment: Cash 20,000

Balance Sheet:

Installment receivables P55,000 – 20,000 P 35,000

Deferred gross profit ( 25,000)

Installment receivables (net) P 10,000

29. a

Sale: Installment receivables 55,000

Inventory 30,000

2008: Cash 20,000

Cash 15,000

2009: Deferred gross profit 5,000

Realized gross profit 5,000 Balance Sheet:

Installment receivables P 20,000

Deferred gross profit ( 20,000)

Installment receivables (net) P 0 30. c

Note: Since the collectibility of the note is reasonably assured, the accrual basis should be applied. Therefore, full gross profit is recognized in the year of sale.

Gross profit on sale:

Sales (P187,500 x 4.3553) P816,619

Gross profit (realized) P179,119

31. c

Total Income for 20x4:

Gross profit (realized) – No. 51

Interest revenue—4 months: P816,619 x 10% x 4/12.. P179,119 _ 27,221

Total income for 20x4 P206,340

32. b

Gross profit (realized) – already recognized in 20x4 P 0

Interest revenue – 8 months in Year 1 (P81,662* x 8/12) P 54,441

4 months in Year 2 (P71,078* x 4/12) 23,693 78,134

Total Income for 20x5 P 78,134

(22)

*Schedule of Discount Amortization/Interest Income computation:

(1) (2) (3) (4)

Face Net Discount

Amount Unamortized Amount Amortization

Year of Note1 _Discount _{(1) – (2) 10%}_₍₃₎

1 P1,125,000 P308,3813 _{P 816,619}2 _81,6625

2 937,500 226,7194_{710,781 71,078}

1 _{P187,500 x 6 years = P1,125,000; every year P187,500 should be deducted on the}

previous balance.

2_{The present value of sales/receivables: P187,500 x 4.3553 = P816,619} 3_{P1,125,000 – P816,619}

4_{(2) – (4)}

5_{Discount amortization give rise to recognition of interest revenue/income.}

33. a

Note: Since the collectibility of the note cannot be reasonably assured, the installment sales method should be applied. Also, if the there is high degree of uncertainty as to collectibility, the cost recovery method may be used.

Installment sale: Gross profit (P179,119/P816,619) 22% (rounded) Gross profit earned in 20x4 (P0* x 22%) P 0

* no collections in 20x4. 34. a

Gross profit earned in 20x4 (P0* x 22%) P 0

Interest revenue (refer to No. 52 27,221

Total income for 20x4. P 27,221

35. d

Collections in 20x5 (August 31, 20x5) P 187,500 Less: Interest revenue/income from September 1, 20x4 to

August 31, 20x5 (refer to schedule of amortization in No. 53) 81,662

Collection as to principal P 105,838 x: Gross Profit % (refer to No. 54)

22%

Gross profit realized in 20x5 P 23,284 Add: Interest revenue/income for 20x5 (refer to No. 53)

78,134

Total Income for 20x5 P 101,418

36. d (P2,000,000 – P1,500,000) ÷ P2,000,000 = 25% 37. a (P800,000 x .25) – P90,000 = P110,000,

38. d P700,000 x .25 = P175,000; P500,000 x .25 = P125,000. 39. a (P3,000,000 – P2,100,000) ÷ P3,000,000 = 30%.

(23)

41. a P1,050,000  .30 = P315,000 P900,000 – [(P1,200,000 + P1,050,000)  .30] = P225,000. 42. b P24,000 – P7,200 = P16,800 P16,800 – P13,500 = P3,300 loss. 43. d [P5,600 x (1 – .40)] – (P2,100 – P140) = P1,400. 44. d P8,400 – P5,880 = P2,520 (P3,000 – P300) – P2,520 = P180 gain. 45. d 20x4: P24,000 – P0 = P24,000 collections x 39%P 9,360 20x5: P300,000 – P60,000 – P10,000 defaults = P230,000 x 42% 96,600 20x6: P480,000 – P320,000 – P5,000 defaults = P155,000 x 40% 62,000

Realized gross profit on installment sales in 20x6 P167,960

46. b

20x5 Sales 20x6 Sales Net

Market Values P 4,500 P 3,500 Less: Unrecovered Cost:

IAR, unpaid balances P10,000 P 5,000

x: Cost Ratio 50% 5,800 60% 3,000

Gain (loss) P (1,300) P 500 P( 800)

47. a

(1) Gain or Loss on repossession:

Estimated selling price P

1,700

Less: Normal profit (37% x P1,700) 629

Market value of repossessed merchandise P 1,071 Less: Unrecovered Cost:

Unpaid balance – 20x3 P 2,200

Less: DGP – x3 (P2,200 x34%) 748 1,452

Loss on repossession P( 381)

(2) Realized gross profit on installment sales:

20x2 Sales: (P24,020 – P 0) x 35% P 8,407.0 20x3 Sales: (P344,460 – P67,440 – P2,200) x 34% 93,438.8

20x4 Sales: (P602,000 – P410,090) x 37% 71,006.7 Realized gross profit on installment sales P 172,852.5 48. c

Deferred Gross Profit, end (12/312/20x4: IAR, end of 2004 x GP %) 20x2 Sales: P 0

20x3 Sales: (P67,440 x 34%. 22,929.6

20x4 Sales: (P410,090 x 37%)

(24)

P174,662.9

49. d*

Resale Value P 8,500

Less: Normal profit for 20x6 - year of repossession

[(P3,010,000 – P1,896,300)/P3,010,000] x 8,500 3,145

Market Value of Repossessed Merchandise P 5,355

Less: Unrecovered Costs – 20x5

Defaulted balance* (P27,000 – P16,000) P 11,000 Less: DGP [(P2,160,000 - P1,425,600)/P2,160,000] x P11,000 ___3,740 __7,260 Loss on repossession P( 1,905) Entry made: Inventory of RM* 11,000 IAR-20x5 11,000

Correct Entry (Should be):

Inventory of RM (at MV) 5,355 DGP-20x5 3,740 Loss on repossession 1,905 IAR-20x5 11,000 Correcting Entry: DGP-20x5 3,740 Loss on repossession 1,905 Inventory of RM 5,645** 50. c Installment Sales P 3,600,000 Less: Over-allowance: Trade-in allowance P1,500,000

Less: MV of Trade-in Merchandise:

Estimated Resale Price P 1,400,000 Less: Normal profit (25% x P1,400,000) 350,000

Reconditioning costs 150,000 900,000 600,000

Adjusted Installment Sales P

3,000,000

Less: Cost of I/S 2,500,000

Gross Profit P 500,000 Gross profit rate: P500,000/ P3,000,000 16 2/3% x: Collections –Trade-in merchandise (at MV) P 900,000

RGP on I/S in 20x4 P

150,000 51. c

Trade-in allowance P43,200

Less: MV of trade-in allowance:

Estimated resale price after reconditioning costs P36,000

Less: Reconditioning costs 1,800

(25)

Over-allowance P 14,400

Installment sales P122,400

Less: Over-allowance 14,400

Adjusted Installment Sales P108,000

Less: Cost of Installment Sales 86,400

Gross profit P 21,600

Gross profit rate: P21,600/P108,000 20%

Realized gross profit:

Down payment P 7,200

Trade-in (at market value) 28,800

Installment collections:

(P108,000 – P28,800 – P7,200) / 10 mos. X 3 mos. 21,600

Total collections in 2008 P 57,600

x: Gross profit rate 20%

Realized gross profit P 11,520

52. d

(Note: For financial accounting purposes, the installment-sales method is not used, and the full gross profit is recognized in the year of sale, because collection of the receivable is reasonably assured.)

Finley Company

Computation of Income Before Income Taxes On Installment Sale Contract

For the Year Ended December 31, 20x3

Sales P4,584,000

Cost of Sales 3,825,000

Gross Profit 759,000

Interest Revenue (Schedule I) 328,320

Income before Income Taxes P1,087,320

Schedule I

Computation of Interest Revenue on Installment Sale Contract

Cash selling price (sales) P4,584,000

Payment made on January 1, 20x3 936,000

Balance outstanding at 12/31/x3 3,648,000 Interest rate 9% Interest Revenue P 328,320 Quiz - VII 1. P920,000 20x4: P1,200,000 x 30% = P 360,000 20x5: P1,400,000 x 40% = 560,000 P920,000 2. P190,000 (P300,000 ÷ P750,000) x P250,000 = P100,000 [(P270,000 ÷ P900,000) x P300,000] + P100,000 = P190,000

(26)

3. P1,600– assume the use of installment sales method. It should be noted that if the collectability is highly uncertain or extremely uncertain, the use of cost recovery method is preferable.

4. Zero/Nil

When the cost recovery method is used, gross profit is recognized only after all costs have been recovered.

20x5

P45,000 x 63% = P28,350 Cost of sale

P28,350 - P24,000 = P4,350 No gross profit is recognized in 20x5. Costs still to be recovered.

5. P19,250 20x6

Relating to 20x5 sales:

P19,000 - P4,350 = P14,650 Gross profit recognized Relating to 20x6 sales:

P60,000 x 59% = P35,400 Cost of sale

P40,000 - P35,400 = 4,600 Gross profit recognized P19,250 Recognized in 20x6 6. P21,000

20x7

Relating to 20x5 sales: Since all costs have been recovered, all cash collected is

recognized as gross profit ... P 2,000 Relating to 20x6 sales:

Since all costs have been recovered, all cash collected is

recognized as gross profit ... 17,000 Relating to 20x7 sales: P85,000 x 60% = P51,000 Cost of sale P53,000 - P51,000 = ... 2,000 Gross profit recognized P21,000 Recognized in 20x7 7. P320,000 [(P1,000,000 – P200,000) x (P1,000,000 – P600,000)/P1,000,000 = P320,000 8. P390,000

P1,800,000 – P1,080,000 = P720,000 (40% gross profit rate) P720,000 – (P825,000 x 40%) = P390,000. 9. P 128,000

Installment Accounts Receivable, end of 20x4 P 320,000 x: Gross profit rate (66 2/3 / 166 2/3)

_____40%

Deferred Gross Profit, end of 20x4 P 128,000

10. P25,168, determined as follows: Gross profit percentages:

20x3: P136,000/P160,000 = 85%; 100% x 85% = 15% 20x4: P158,240/P184,000 = 86%; 100% x 86% = 14% To deferred gross profit:

20x3: P160,000 x P136,000 = P24,000

(27)

P49,760 Gross profit realized:

0.15 x P40,000 = P 6,000

0.15 x P89,600 = 13,440

0.14 x P36,800 = 5,152

P24,592 Balance of Gross Profit Deferred:

P49,760 - P24,592 = P25,168 11. P 0 – all profit recognized in 20x5 12. P240 – (P1,200/P2,000) x P400

13. P100 - (100% of costs were fully recovered prior to 20x7 14. P10 million, the amount of sale

15 . P450 – [P1,000 – P250 = P750 – (P750 x 400/1,000)] = P450 16. P50 gain

Repossessed merchandise……… 500

Deferred gross profit……… 300

Installment Accounts receivable……….. 750

Gain on repossession……… 50 17. 0 Unrecovered costs,1/1/20x4 100 Less: Collections 70 Unrecovered costs,1/1/20x5 30 Less: Collections 40 Profit – 20x5 10 Profit – 20x5 30 18. P10 – refer to No. 17 19. P30 –refer to No. 17 20. Zero Unrecovered costs – 20x4 120,000 Less: Collections – 20x4 ______0 Unrecovered costs, 12/31/20x4 120,000 Additional costs – 20x5 _20,000 Total costs 140,000 Less: Collections – 20x5 80,000 Unrecovered costs, 12/31/20x5 60,000 Additional costs – 20x6 20,000 Total costs 80,000 Less: Collections – 20x6 40,000 Unrecovered costs, 12/31/20x6 40,000 Additional costs – 20x7 10,000 Total costs 50,000 Less: Collections – 20x7 100,000 Profit – 20x7 50,000

21. P50,000 profit – refer to No. 20 22. P105,000 = P68,250 / (100% - 35%) 23. P31,000 = P50,000 x (100% - 38%) 24. P43,700

Unrecovered costs – Cost of installment sales for 20x5 installment sales 56,050 Less: Collections in 20x5 for 20x5 installment sales _22,800

Unrecovered costs, 12/31/20x5 33,250

Less: Collections in 20x6 for 20x5 installment sales (balancing figure) _ 43,700

Realized GP on I/S in 20x6 for 20x5 sales *10,450

*

(28)

Less: Realized GP on I/S in 20x6 for 20x5 I/S since cost of P31,000 (No. 23) is

already recovered in 20x5 equivalent to collection __5,600 Realized GP on I/S in 20x6 for 20x5 installment sales *10,450 25. Zero – costs is not yet fully recovered, the profit should be recognized

Unrecovered costs – Cost of installment sales for 20x4 (No. 23) 31,000 Less: Collections in 20x4 for 20x4 installment sales _22,800

26. P41,000

Unrecovered costs – Cost of installment sales for 20x4 installment

sales 31,000

Less: Collections in 20x4 for 20x4 installment sales _25,600

Less: Collections in 20x5 for 20x4 installment sales 46,400 Realized GP on I/S in 20x5 for 20x4 installment sales 41,000 Realized GP on I/S in 20x5 for 20x5 installment sales:

Unrecovered costs – Cost of installment sales for 20x5 installment

Sales 56,050

Less: Collections in 20x5 for 20x5 installment sales 22,800

____-0-Realized GP on I/S in 20x5 41,000

27. P 45,000

Installment receivable = P200,000

Deferred gross profit = P80,000 (P200,000 x 40%) Fair value = P75,000

Repossessed inventory P 75,000 Deferred gross profit P 80,000 Loss on repossession (plug) P 45,000

Installment receivable P 200,000

28. Zero

P450,000 cost P300,000 collections = P150,000 unrecovered costs 29. P300,000

20x4 sales: Cost = P450,000; P300,000 collected in each year 20x4-20x6. P300,000 of cost recovered in 20x4, the other P150,000 of cost recovered in 20x5, so P150,000 of gross profit recognized in 20x5, leaving P300,000 recognized in 20x6.

20x5 sales: Cost = P900,000; P500,000 collected in 20x5, P400,000 collected in 20x6. P500,000 of cost recovered in 20x5, the other P400,000 of cost

recovered in 20x5, so P0 of gross profit recognized in 20x6. Total: P300,000 + P0 = P300,000

(29)

30. d

20x4 Sales: Installment receivables = P900,000 – P300,000 (x4 collections) - P300,000 (x5 collections) = P 300,000

Deferred gross profit = P450,000 – P0 (all x4 collections to cost recovery - P150,000 (P150,000 of x5

collections to cost recovery) = 300,000 Net installment receivable for 20x4 sales = P 0

20x5 Sales: Installment receivables = P1,500,000 – P500,000 (x5 collections)= P1,000,000

Deferred gross profit = P600,000 – P0 (all x5 collections to

cost recovery) = P 600,000 Net installment receivable for 20x5 = P 400,000

Total = P 400,000

31. 24%.

Determined from the repossession entry:

Deferred gross profit P2,400

———— = 24% Installment accounts receivable P10,000

32. 35%

Gross profit P 42,000

Gross profit P42,000

————- = 35% gross profit rate

33.

a. 20x4 Deferred gross profit balance P 12,000

Gross profit rate ÷ 25%

Beginning accounts receivable P 48,000

Ending accounts receivable (20,000)

Cash collected P 28,000

b. 20x5 Deferred gross profit balance P 26,400

Gross profit rate ÷ 24%

Beginning accounts receivable* P110,000

Ending accounts receivable* (50,000)

Cash collected P 60,000

c. 20x6 Installment sales—20x6 P120,000

Accounts receivable—20x6 (90,000)

(30)

34. P31,900

Total realized gross profit in 20x6

From 20x4 P28,000 × 25% = P 7,000 20x5 P60,000 × 24% = 14,400 20x6 P30,000 × 35% = 10,500 P31,900

*Excluding accounts receivable for repossessed merchandise. 35. 20x4 (2010), P33,750; 20x5 (2011), P95,250

Gross profit realized in 20x4 (2010):

Installment sales = [(P300,000  P165,000)/P300,000] x P75,000

= P33,750

Gross profit realized in 20x5 (2011):

From 20x4 sales = [(P300,000  P165,000)/P300,000] x P105,000 = P47,250 From 20x5 sales = [(P450,000  P270,000)/P450,000] x P120,000 = 48,000 P95,250 36. 20x4 (2010), P148,750; 20x5 (2011), P275,250 20x4 20x5 (2010) (2011 Sales P450,000 P450,000 Cost of sales 335,000 270,000 Gross profit P115,000 P180,000

Gross profit realized on installment sales

33,750 95,250

Total gross profit P148,750 P275,250

37. 20x4 (2010), P148,750; 20x5 (2011), P275,250

. 20x4 20x5

(2010) (2011

Installment accounts receivable P225,000 P450,000 Less: Deferred gross profit 101,250 186,000 Net of deferred gross profit P123,750 P264,000 Theories

1. False 6. True 11. True 16. True 21

. True 26. True 2. True 7. False 12 . False 17 . True 22 . True 27. True 3. False 8. True 13 . False 18 . False 23 . True 28. False 4. True 9. False 14 . True 19 . False 24 . True 29. True 5. True 10 . True 15 . True 20 . True 25 . True 30 . c 35 . b 40. a 45. b 50 . d 55. d 31 b 36 d 41 e 46. c 51 c 56. b

(31)

. . . . 32 . b 37 . d 42 . b 47. c 52 . b 57. d 33 . b 38 . e 43 . b 48. c 53 . a 58. c 34 . c 39 . c 44 . d 49. d 54. b 59. c 60. C 65. b 61 . B 66 . b 62 . b 67. d 63 . c 68 . d 64 . d 69. c